TJOFLAT, Circuit Judge:
The ultimate question in this case is whether a state divorce court can defease the United States of its interest in property forfeited under the criminal forfeiture provisions of 18 U.S.C. § 982 (1994) and 21 U.S.C. § 853 (1994). We answer this question in the negative.
On January 27, 1995, a federal grand jury in the Middle District of Florida indicted Byron Kennedy ("Kennedy") on twelve counts of mail fraud in violation of 18 U.S.C. § 1341 (1994),
Continental Graphics, Inc. ("CGI")
Kennedy altered the invoices, however, so as to instruct schools to send their payments to P.O. Box 10937. Only Kennedy had access to Box 10937. When CGI became concerned that the new arrangement had led to an alarming rate of past due invoices, Kennedy told the company that he had no idea why payments were not being received. In the meantime, Kennedy was pocketing thousands of dollars that schools had mistakenly sent to his personal post office box, in violation of 18 U.S.C. § 1341. The indictment also alleged that Kennedy had converted $177,445.05 of the stolen money by purchasing a beach house at 2910 Sunset Way in St. Petersburg, in violation of 18 U.S.C. § 1957. On the same day the indictment was returned, the Government recorded its notice of lis pendens on the property.
On July 28, a jury found Kennedy guilty on all counts and also returned a special verdict finding that the Sunset Way property "was involved in the unlawful monetary transaction [prohibited by 18 U.S.C. § 1957] ..., or is property traceable to property which was involved in the unlawful monetary transaction...." On November 30, the district court issued an order forfeiting all Kennedy's right, title, and interest in the Sunset Way property to the United States, pursuant to 18 U.S.C. § 982.
After the court entered its order of forfeiture, three parties filed petitions in the district court seeking to adjudicate their interests in the Sunset Way property in accordance with 21 U.S.C. § 853(n)(2):
In June 1989, the Kennedys entered into a real estate contract to purchase the Sunset Way beach house for $542,500. By then they had been married for almost thirty-one years. Their four sons were grown. Mrs. Kennedy considered their old house too large and costly to upkeep, and she no longer liked their old neighborhood. To her, the beach house she had spotted for sale offered more. Her husband, however, did not share her enthusiasm. Because of his reluctance and her desire for change, Mrs. Kennedy committed much of her personal wealth to convince him to join her in purchasing the residence.
Mrs. Kennedy had worked throughout most of the marriage. She taught in the public school system, modeled, refinished furniture, and owned (and continues to own) Patti and Friends Antique Mall, a business that rents booths to about eighty vendors. She had inherited securities after her mother's death in 1968, and knew by June 1989 that she could expect to receive a significant inheritance due to her father's recent death. Consequently, Mrs. Kennedy thought she would have the financial means to contribute toward the purchase of the new home.
Unfortunately, at the time she wanted to execute a contract on the Sunset Way property, Mrs. Kennedy did not have the means in hand. Her inheritance had not come through, and the Kennedys had not yet sold their old residence. Therefore, in June 1989, Mrs. Kennedy promised to repay her husband if he would make the $50,000 earnest money deposit. Kennedy agreed, telling his wife that he would borrow the money from his business.
The couple acquired the property in September 1989. At the closing, they paid the sellers $134,445.05 in cash and assumed an existing $356,000 mortgage held by the Credit Union. As with the earnest money deposit, Kennedy advanced the cash payment (again telling his wife that he was borrowing the money from his business) with the understanding that Mrs. Kennedy would repay him either when she received her inheritance or when their old house sold. Though Mrs. Kennedy was unaware of her husband's improprieties, it is undisputed that the $184,445.05.
The district court found that when the Kennedys closed on the beach house in September 1989, they owned the property as tenants by the entireties, meaning that each spouse had "an indivisible right to own and occupy the entire property." United States v. One Single Family Residence With Out Bldgs., 894 F.2d 1511, 1515 (11th Cir.1990). Despite their joint ownership, Mrs. Kennedy kept her promise to repay her husband almost the full amount of the funds that he had contributed toward the purchase of the residence.
Mrs. Kennedy first learned of her husband's fraud in May 1991. As noted above, Kennedy was indicted on charges of mail fraud and unlawful monetary transactions a little less than four years later, on January 27, 1995; this was the same day that the Government recorded its notice of lis pendens on the Sunset Way residence. Two months later, Mrs. Kennedy filed for a divorce. At a domestic mediation conference held to establish the financial terms of the divorce, the parties agreed that Mrs. Kennedy had a "special equity" in the beach house; this was largely because, including the funds Mrs. Kennedy had used to repay her husband for his contributions at the time of purchase, Mrs. Kennedy produced checks totaling more than $392,412 that she had invested in the property.
Under 21 U.S.C. § 853(n)(6), third party petitioners can establish their interest in forfeited property in only two ways. See United States v. Reckmeyer, 836 F.2d 200, 203 (4th Cir.1987) ("Subsection (n) provides the only means for third parties to establish their interest in forfeited property."). The statute provides:
21 U.S.C. § 853(n)(6).
Reckmeyer, 836 F.2d at 204; see also United States v. Jimerson, 5 F.3d 1453, 1455 (11th Cir.1993).
The district court concluded that Mrs. Kennedy prevails under either section. The court found that
The court thus modified its November 30, 1995 order of forfeiture, and granted both Mrs. Kennedy's and the Credit Union's petitions to establish their interests in the forfeited property, with the Credit Union having priority as a mortgagee. The court also denied CGI's petition to establish its interest in the forfeited property. The Government and CGI now appeal. All parties agree that the government's interest, if any, is limited to Kennedy's one-half interest in the property. Mrs. Kennedy's one-half interest was never subject to forfeiture, and it remains unaffected by our decision today.
We review the district court's findings of fact for clear error. We independently review the court's conclusions of law de novo. See One Single Family Residence, 894 F.2d at 1513. Though CGI challenges some of the district court's factual findings, our review of the record convinces us at the outset that the court's findings of fact are not clearly erroneous. Our review is therefore limited to questions of law.
The criminal forfeiture provisions of section 853 authorize the government to seek forfeiture of a defendant's interest in subject property. See United States v. Lester, 85 F.3d 1409, 1413 (9th Cir.1996). This is in contrast to the civil forfeiture scheme embodied in 21 U.S.C. § 881, involving an in rem proceeding, wherein the whole property (as opposed to a particular defendant's interest in the property) is treated as being itself guilty of wrongdoing. See United States v. One 1976 Mercedes Benz 280S, 618 F.2d 453, 454 (7th Cir.1980). Thus, we must decide whether Kennedy's interest in the Sunset Way property is properly forfeitable to the United States, or whether Mrs. Kennedy has established either (a) that she is a bona fide purchaser for value of Kennedy's interest in the real estate, or (b) that she had an interest in the property that was superior to Kennedy's interest at the time he committed the acts giving rise to the forfeiture.
The district court concluded that Mrs. Kennedy became a bona fide purchaser for value as of the date that she and her husband closed on the Sunset Way property. The court found,
This analysis does not address the real question, which is, did Mrs. Kennedy ever purchase her former husband's interest in the subject property. Of course Mrs. Kennedy became a "bona fide purchaser for value" of some part of the Sunset Way property on September 1, 1989, because along with her then-husband she assumed a $356,000 mortgage on the property. Specifically, she purchased a spousal interest
Once the question is properly framed, it becomes clear that Mrs. Kennedy cannot prevail under the bona fide purchaser exception. Mrs. Kennedy argues that she did indeed purchase Kennedy's interest in the property because she repaid the funds Kennedy contributed as an earnest money deposit and at closing with her separate inheritance money. She characterizes Kennedy's initial contributions as a loan, whereby neither she nor her former husband ever intended that any part of the Sunset Way property be owned by him; and she reminds the court that it was she, and not Kennedy, who wanted to buy the beach residence in the first place, and that Kennedy would never have consented to the purchase while they were married had she not promised to repay him all the monies he initially invested. But this argument is belied by the plain fact that the couple took title to the property jointly, as tenants by the entireties. A tenancy by the entireties is an ownership arrangement peculiar to marriage, the most significant aspect of which is its distribution of property between two people who form, in the eyes of the law, a unity. Under the Florida law,
One Single Family Residence, 894 F.2d at 1514-15 (internal citations and quotation marks omitted). To argue that both spouses always intended Mrs. Kennedy to be the sole owner of the property seems strained at best, given that she and Kennedy entered into a form of ownership most notable for its joint encumberments.
The district court also found that Mrs. Kennedy could escape forfeiture of her former husband's interest in the property under the superior title provisions of section 853(n)(6)(A). The court reasoned that because the divorce court had granted Mrs. Kennedy a special equity in the home upon dissolution of the marriage, and directed Kennedy to transfer to her all his right, title, and interest in the home, Mrs. Kennedy had an interest in the whole property that was superior to his. Florida law does recognize a special equity upon divorce when one spouse can demonstrate that (1) he or she paid for certain property from a source unconnected with the marriage, and (2) a gift to the other spouse was not intended. See Robertson v. Robertson, 593 So.2d 491, 494 (Fla.1991). The special equity "only comes into actual identifiable form," however, "upon the termination of the marriage status." Bosch v. United States, 590 F.2d 165, 167 (5th Cir. 1979).
Section 853(n)(6)(A) requires a third party petitioner to establish that he or she had an interest in the subject property that "was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section." 21 U.S.C. § 853(n)(6)(A) (emphasis added). The acts which gave rise to the forfeiture took place in June 1989, when Kennedy used $50,000 of money stolen from CGI as an earnest money deposit for the property, and September 1989, when Kennedy used $134,445.05 in stolen funds as a cash payment at closing. This was months before the earliest time at which Mrs. Kennedy's special equity could have vested. At the time of the acts giving rise to the forfeiture, Mr. and Mrs. Kennedy took title to the property as tenants by the entireties. The state court's grant of a special equity, even with its recognition of an interest in Mrs. Kennedy that was vested prior to dissolution, does not alter that conclusion. Because we have explicitly held in Jimerson, 5 F.3d at 1455, that "[t]he very nature of the tenancy by the entireties prevents [a petitioner] from claiming that her title is superior to her husband's," we conclude that Mrs. Kennedy cannot prevail under section 853(n)(6)(A) because even if she had an interest that was superior to her former husband's, no such interest was vested at the time of the act giving rise to the forfeiture.
Mrs. Kennedy contends that the Sixth Circuit's decision in United States v. Certain Real Property Located at 2525 Leroy Lane (Leroy Lane II), 972 F.2d 136 (6th Cir.1992), is both on point and persuasive. We agree that the decision is on point;
Mrs. Kennedy finds further support for the Sixth Circuit's timeline theory from Florida case law holding that a state divorce court's award of property to one spouse takes effect at the moment the entireties interest is destroyed. Under Florida law, during the life of an entireties estate, "creditors cannot levy on entireties property to satisfy the debt of an individual spouse." One Single Family Residence,
Id. at 10. Mrs. Kennedy argues that ownership of the Sunset Way property flowed seamlessly from her and Kennedy as tenants by the entireties, to her alone as sole owner by virtue of the divorce court's decree. Under the timeline theory, therefore, because the Government was precluded from executing its interest in Kennedy's share of the entireties estate during the marriage, and because the divorce court awarded Mrs. Kennedy a special equity in the whole property upon dissolution of the marriage, there was never a moment in time when the Government's interest could attach. What the Government could not execute upon during the marriage has disappeared upon divorce.
The problem with the timeline theory is that it evaluates the Government's interest along a linear continuum, when what the statute directs is that we look at whether the Government can execute on its interest in forfeited property at the moment it seeks to do so. At this moment, Mrs. Kennedy holds property that was forfeited by final order to United States; pursuant to an indictment, a jury returned a special verdict finding that the Sunset Way property either was involved or was property traceable to property that was involved in unlawful monetary transactions, and the district court issued an order forfeiting Kennedy's interest. Under section 853(n), subsequent to a final order of forfeiture it became Mrs. Kennedy's burden to come forward and demonstrate either that she had superior title to the property at the time of the act giving rise to the forfeiture, or that she is a bona fide purchaser for value of Kennedy's interest. 21 U.S.C. § 853(n)(6). As we have already concluded, she can prevail under neither rationale.
Our decision in One Single Family Residence does not lead naturally to the Sixth Circuit's conclusion in Leroy Lane II. In One Single Family Residence, we found in the context of civil forfeiture that even when a spouse's interest in property held by the entireties is subject to forfeiture, the government cannot execute on its interest during the tenancy if the other spouse is an "innocent owner" under 21 U.S.C. § 881(a)(7) because,
894 F.2d at 1516. We have never held that One Single Family Residence applies in the criminal forfeiture context, and we do not do so today.
We can also assume that even though federal law decides what interests are subject to forfeiture under section 853, state property law defines what those interests are in the first instance. See Lester, 85 F.3d at 1412; United States v. Ben-Hur, 20 F.3d 313, 317 (7th Cir.1994); Leroy Lane I, 910 F.2d at 348. No preemption is necessary because our decision today does not conflict with Florida law. We have taken due notice of the state divorce court's award of a special equity in the whole Sunset Way property to Mrs. Kennedy pursuant to state family law. That award does not affect our conclusion that Kennedy's former interest in the property was forfeited under federal law, and that Mrs. Kennedy is not entitled to that interest under either section 853(n)(6)(A) or (B). Our holding today is a natural consequence of the fact that federal law provides only two avenues of relief for third parties seeking to establish their interest in criminally forfeited property, and the fact that federal law decides what interests are subject to forfeiture. Third parties can argue that they held superior title at the time of the act giving rise to the forfeiture, or that they are bona fide purchasers for value. They cannot argue, however, that a state divorce court awarded them a special equity in the forfeited property; there is no "special equity provision" in section 853(n)(6).
The Sixth Circuit's timeline theory threatens completely to subordinate federal law not to state property law, but to state judges who are given carte blanche to decide what interests the United States—not even a party to the divorce proceeding—will be able to execute upon after the dissolution of the marriage, and
For the foregoing reasons, we REVERSE the district court's order granting Mrs. Kennedy's petition to establish her interest in the forfeited property, and REMAND with instructions that the district court reinstate the order of forfeiture.
REVERSED and REMANDED.
Section 1956(c)(7)(A) defines "specified unlawful activity" as "any act or activity constituting an offense listed in section 1961(1) of [title 18] except an act which is indictable under subchapter II of chapter 53 of title 31." A violation of section 1341 (relating to mail fraud) is listed as an offense in section 1961(1).
Section 982(b)(1) provides that "[t]he forfeiture of property under this section ... shall be governed by ... [21 U.S.C. § 853]." We discuss section 853, which is at the heart of this appeal, in part III.
Fed.R.Crim.P. 32(d)(2). The rule makes clear that "[a]t sentencing, a final order of forfeiture shall be made part of the sentence and included in the judgment." Id. Because the district court entered its order at the time it sentenced Kennedy, the order was properly a final order of forfeiture.
894 F.2d at 1516 n.6.